The Future of Research

I’m curious. It appears that research positions are becoming less abundant each year. Whether it be related to consolidation, or the walling off of research and banking. I sense now and in the future, there will be less research roles available relative to in the past. Can anyone make a case for the signigicant expansion of researchs divisions at banks, or the rise of research boutiques?

What evidence are you using to state that: “It appears that research positions are becoming less abundant each year. Whether it be related to consolidation, or the walling off of research and banking.” As far as I know the number of research positions is flat, which makes sense in a mature market. What you might be seeing lately is a lack of turnover do to tighter markets and people either not leaving their job cuz they can’t find a suitable replacement, or afraid to leave for time off in case they can’t find a suitable replacement int he future. A key note, we are at the top of the capital markets cycle (well a few months ago) so layoffs and job tightening started to happen. Just as many other sectors, banking and research is cyclical. Perhaps you’re young and your perception is only of the last few months/year?

these jobs are going to India and China!!!

I suppose it seems that way when you’re looking for a job.

Gouman Wrote: ------------------------------------------------------- > I’m curious. It appears that research positions > are becoming less abundant each year. Whether it > be related to consolidation, or the walling off of > research and banking. I sense now and in the > future, there will be less research roles > available relative to in the past. The Global Settlement was enacted a few years ago, so the “Chinese Wall” you are alluding to is not a new issue. Also, even though commissions continue to deteriorate and hedge funds seek different types of information about the stocks they invest in, the sell-side has also continued to adapt and investors are willing to pay for this information. Strong sell-side research is also helpful to banks in attracting potential investment banking business; all things considered, obviously companies want to do their IPO’s with banks who have a good research analyst covering them, as a good analyst can draw immense attention to a company once it reaches the secondary markets. With respect to recruiting, some of the pullback that you’re seeing in research hiring now has to do with the credit markets, but I can definitely tell you that my firm over the last few years had the intent of *increasing* headcount rather than decreasing it. > > Can anyone make a case for the signigicant > expansion of researchs divisions at banks, or the > rise of research boutiques? No – you’ll probably continue to see more pullback not only in ER but other front-office areas of the sell-side as the economy contracts. Even when things improve, you won’t see much of an expansion on the sell-side at all, because the cash distribution model of indirect revenues has become more of an issue as banks keep trying to put out more product with less resources. That being said, I still think sell-side research is a great way to build a career in terms of networking opportunities, in-depth industry knowledge, accounting, interacting with senior management teams, and really learning about what drives a stock. However, I would say that if you have aspirations to become a senior analyst on the sell-side and you’re not there already, you might be in for some tough times because the research business model continues to evolve and it can be difficult to be part of a biz that’s not totally static. For additional insights, I highly recommend you peruse this posting I wrote on WSO a couple weeks ago. I think you will find the answers to some of your questions in greater detail here: http://wallstreetoasis.com/forums/where-do-you-see-the-equity-research-industry-going

I also think strikershank’s assessment of the current employment environment on the sell-side is accurate.

Numi, Thanks for your insight. Strikershank: I’m basing my statements off of what I have been told by working analyst, recruiters/HR reps, and my own experience. Obviously as the economy grows, research and the majority of other occupations will see growth. Nevertheless, compared with past decades the environment today for research analyst is much tighter and growth is sluggish. BLS forecast the rate of growth for financial analyst to be above average when comapred to job growth in general. However, thats taking all financial analyst into account. I cannot find studies that single out FI/Equity researchers.

Numi - Great post on WSO. Also, I am no expert in ER, but I would recommend taking a look at the book by Dan Reingold entitled “Confessions of a Wall Street Analyst.” The book doesn’t focus on the future of ER, but it does provide good insight into the role ER plays for most BB firms, despite the fact that it a primarily a cost center. Maybe the growth of ER positions will stagnate at best, decrease at worse, in the future, but I think ER does play a role that will never go away.

Thanks for the insights GoVols – your assessment makes sense. I’ll also have a look at the Reingold book.

There is new book written by a former Equity Research Exec called “Full of Bull” which is an interesting read and more focused on vocational observations.

Given the psychological make up of people, i strongly doubt research departments are going out of business.